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Merck Agrees to $4.85B Settlement Over Pain Drug Vioxx

Even when it was winning most Vioxx lawsuits in the courtroom, the maker of the withdrawn painkiller was losing in other areas, giving Merck & Co. considerable impetus for Friday's $4.85 billion nationwide settlement.

Its bill just for its teams of lawyers was approaching $2 billion with only 15 of roughly 60,0000 cases settled, it was on the hook for tens of millions in jury verdicts if it didn't win appeals and it had become the global poster child for drug safety concerns. Besides, the litigation was obscuring its many recent business successes, from improved profit and stock price to recent approvals and successful launches of several new vaccines and medicines.

With the settlement, one of the largest ever in the drug industry, Merck can eliminate the distractions and focus on developing new drugs and growing its business.

"Without this settlement, the litigation might very well stretch on for years," said executive vice president Kenneth Frazier, the former general counsel who had developed Merck's fight-every-case strategy.

He said the "responsible and reasonable" agreement was the result of that strategy, with about 5,000 cases already dropped or dismissed and plaintiffs seeing how well Merck defended itself in the courtroom, with victories in 10 of 15 cases.

Other factors also were important, from the statute of limitations recently closing the door on any further lawsuits in 42 states to several judges, each swamped with thousands of Vioxx cases, pushing the two sides to enter behind-the-scene settlement talks that have continued since last December.

Merck removed Vioxx from the market Sept. 30, 2004 after its researchers determined the blockbuster arthritis treatment, then pulling in about $2.5 billion a year, doubled risk of heart attacks and strokes.

Company officials estimated the deal, if accepted, would end 45,000 to 50,000 personal injury lawsuits involving U.S. Vioxx users who suffered a heart attack or stroke. Merck faced about 47,000 personal injury lawsuits, plus another 14,100 that were on hold with agreements to suspend the statute of limitations.

Those people are all eligible for a claim, if they can prove they suffered a heart attack or stroke and took Vioxx shortly before, but Merck said it will continue to vigorously fight all other lawsuits, including those from people in foreign countries, with other injuries and with claims related to financial losses.

Analysts, who initially had estimated Merck's liability as high as $50 billion, universally called the deal a good move for Merck, which does not have to admit causation or fault under the settlement.

"We believe the company's aggressive and successful defense strategy has given it a heavy hand in the bargaining process and produced a favorable outcome … at a cost that is clearly at the low end of general expectations," Deutsche Bank North America analyst Barbara Ryan wrote in a research report.

She said the settlement amount is "completely manageable," given that the payouts will be spread out and Merck has about $5.4 billion in net cash on hand.

Wall Street also registered its approval, as shares rose $1.13, or 2 percent, to close Friday at $55.90, near its 52-week high of $58.36.

Plaintiffs lawyers also stand to benefit from the settlement. With contingency fees of 33 percent to 40 percent that will come out of the $4.85 billion, lawyers will share about $1.6 billion to $2 billion. Up to 60 law firms that handled extensive pretrial preparation get the biggest share, and all their costs will come out of the payouts to clients, which could start as early as next August.

Andy Birchfield, co-lead counsel for the federal litigation, said claimants will receive a minimum of $5,000, with exact amounts determined by a complex formula including the severity of injury, how long the plaintiff took Vioxx and plaintiff's age and cardiovascular risk factors. A complex system would assign points to each claimant, who must have filed claims by Thursday _ a rule to prevent a flood of new lawsuits.

"You'll have folks that will get well in excess of $1 million," he said.

Law professors said the settlement is good news for many plaintiffs, ending years of delay and uncertainty over whether they would get any money.

But three professors said they were concerned by a provision that all the lawyers who worked out the settlement must persuade all of their clients to accept the deal and drop any clients who want to hold out for a trial.

"It's troubling from an ethics perspective," said Howard Erichson, a law professor at Seton Hall University. While not unprecedented, "it puts pressure on lawyers not to give the best advice to individual clients."

Negotiating teams met more than 50 times in eight states and spoke hundreds of times by telephone over many months to hammer out the deal, according to attorneys.

"I'm very happy with it," said Chris Seeger, one of six plaintiff lawyers who helped negotiate the settlement. "Every claimant is going to be compensated" once their claim is validated.

The deal becomes binding only if accepted by 85 percent of all plaintiffs with pending heart attack and stroke cases, cases involving deaths and cases alleging more than 12 months of Vioxx use.

"I'm not in the least bit of doubt that we'll do it," said Russ Herman, a New Orleans attorney who served as chairman of the plaintiffs negotiating committee.

Other experts also said they expect the deal to go through.

With the settlement, Merck drops its insistence that Vioxx caused harm only after 18 months.

It will take a pretax charge of $4.85 billion in the current quarter, and said much of that will be tax deductible.

Seeger said this deal is larger that the original settlement in cross-state rival Wyeth's diet drug litigation, which ballooned from $3.75 billion to more than $20 billion with repeated revisions.

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